US foreign aid faces cuts as China's reach grows

WASHINGTON: U.S. efforts to counter China's growing influence in the developing world are a likely casualty of the budget battles dominating Washington's politics, as chunks of the foreign aid program face the ax.

That could hurt not just the world's poor, but America's reach in emerging markets where China has ramped up investment and provided easy credit.

The Obama administration has sought to step up its engagement in the Asia-Pacific, Africa, Central Asia and Latin America. Development aid is a key plank of its strategy. The State Department argues it is "as central to advancing America's interests as diplomacy and defense."

Delivering the goods will be a problem as pressure grows to reel in the government's deficit - forecast at $1.5 trillion this year - much of it financed by China.

"Since World War II, the world has looked to the United States for leadership in poverty reduction," said Sarah Jane Staats of the Washington-based Center for Global Development. "It's not clear in the current environment whether the U.S. will be able to do that."

Even funds allotted for emergency humanitarian aid - of the kind that burnished U.S. standing after the 2004 tsunami in Indonesia - could be slashed.

The Republican-led House of Representatives voted last month to cut federal spending by $60 billion for the budget year ending in September in a bill that would have hit foreign aid particularly hard - cutting disaster assistance by 49 percent. Funds for international financial institutions like the World Bank would have been cut by 44 percent and aid to refugees by 39 percent.

The Democrat-led Senate this month rejected the bill, but cuts appear inevitable. The two chambers must reach a compromise on spending to avoid a government shutdown.

Rajiv Shah, chief of the U.S. Agency for International Development, told a recent congressional hearing that the House-proposed cuts would be "absolutely devastating." He said his agency's disaster funds were paying for U.S. nuclear experts to help Japan in the aftermath of the earthquake and tsunami that has left several reactors at risk of meltdown.

But Republicans derided USAID and grilled Shah on specific spending - such as $100,000 to support eco-friendly motorized cycles and $4 million in child health aid for China. They say the U.S. is borrowing 40 cents on every $1 it spends. "We can't give away money we don't have," said Rep. Dana Rohrabacher.

Democrats say America can't afford not to.

"If there's one thing we should have learned in 9/11 it's that if we don't visit bad neighborhoods, then they come to visit you," said Rep. Gary Ackerman.

Aid accounts for only about 1 percent of the federal budget - and even deep cuts would not make a dent in the deficit, which could require lower spending on defense and programs for the elderly.

Secretary of State Hillary Rodham Clinton has cited the competition for global influence as she argues against aid cuts.

The United States still far exceeds China in providing grants and low-interest loans in the developing world. In 2009, the U.S. official development assistance was $28.8 billion. China's is estimated - it does not publish comparable figures - at about $3.1 billion, according to Deborah Brautigam, a foreign aid expert at American University.

But China's aid has increased sharply - it gave just $300 million in 2001 - and its influence on developing economies extends much further through its provision of easy credit to governments, often in return for exports of natural resources such as oil, to finance badly needed infrastructure development or to buy Chinese products.

Brautigam estimates that in 2009, China's official aid to Africa was about $1.4 billion - compared with $7.2 billion from the U.S. But China also provides about $6 billion annually in export credits and commercial loans in Africa, while its state and private enterprises have netted tens of billions in telecommunication, construction and engineering contracts.

"Western nations are still more influential in Africa, but the gap is narrowing," said Benedicte Vibe Christensen, a development and economy specialist. "As aid budgets are constrained in the West, China's is rising."

In the Asia-Pacific, there is more suspicion among nations of China's intentions because of its aggressive claims on disputed territories. Asian governments have welcomed increased engagement by the Obama administration.

But U.S. aid to an increasingly prosperous east Asia has dwindled over the years, eclipsed by the needs of Africa, Afghanistan, Pakistan and Iraq. Major environmental programs in Indonesia and Pacific islands could now be hit. - AP

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